As landlords, we all know there is a wealth of legislation that we need to wrap our heads around to maintain compliance throughout the lifespan of a tenancy. Gas safety, energy efficiency, electrical safety, legionella risk assessments, insurances, prohibited payments, How to Rent, Right to Rent - the list goes on.
One thing many landlords underestimate is the importance of deposit legislation and more crucially, the severity of the penalty for non-compliance. Rarely is there a case where the punishment fits the crime. The '�crime'� is usually failing to protect the deposit in a government-backed scheme within 30 days. So, if you secure on day 31, you'�re in breach.
Equally, if you fail to supply the prescribed information, you'�re in breach. If you fail to re-secure a deposit, you'�re in breach. If you take too much money, you'�re in breach. If it'�s so easy to be in breach, is it worth taking a deposit at all? For the informed landlord, the legislation is far from complex, so one could argue that compliance is easy. For many landlords, ignorance is bliss and - let'�s be honest - tenants are usually oblivious to this legislation and the '�crime'� has no detrimental impact on them.
Due to increasing mortgage rates and the rise in the cost of living we are seeing more possession claims being served, as landlords struggle to balance their own finances. Landlords who relied on the rental income to cover their own expenses are being forced to exit the market as they find their financial commitments spiralling beyond their control.
With the serving of a notice, comes the kickback from the tenant. They too have commitments and rising costs and with fewer properties available on the rental market they seek advice and support to help them remain in their current property. Unfortunately for the landlord, deposits at this point become scrutinised and are an easy way for the tenant to open negotiations with the landlord and discuss financial compensation to enable the tenant to move on.
The harsh reality is that if you fall foul of deposit legislation your tenant can make a counterclaim for up to three times the deposit for every breach. In simple terms that means three times the deposit for every tenancy renewal and for some high-end tenancies these figures can be astronomical.
In December, I took a call at Landlord Action from a landlady who had a counterclaim from her tenant for �48,000. This was purely down to a breach of deposit legislation and she was devastated. She had been ignorant about the deposit rules and relied on the income from the property to help cover her own increased mortgage costs and living expenses. She desperately needed to sell the property due to redundancy during Covid and was being threatened with foreclosure on her mortgage account. She had maxed out her credit cards and taken loans which she could no longer fulfil. She told me she'�d called two numbers that day: The Samaritans and Landlord Action.
Sadly, this is not the first time I'�ve taken a call like this. I also know it won'�t be the last, with 2023 lining up to be a testing year for everyone. The advice is simple. Educate yourself and do it right. From the beginning. Hire a reputable letting agent to help you if you'�re not confident, use a deposit replacement scheme offered by companies such as MyDeposits or alternatively don'�t take a deposit at all. But whatever you do, please do it right.